What happened
The stock of 3M (MMM -1.12%) tumbled 10.5% in the month of February, according to data provided by S&P Global Market Intelligence. With shares of the industrial conglomerate losing another 3% so far in March, 3M stock is now barely 4% away from its 52-week lows as of noon Tuesday.
The company is getting hit from all sides, but here are the five biggest reasons the stock is under so much pressure.
So what
First, 3M stock started to feel the heat from the end of January when it released its fourth-quarter and full-year 2021 numbers. Although the figures beat consensus estimates, expectations were already running low from the company: Earnings dropped 4% year over year in the fourth quarter on flat revenue worth $8.6 billion as the company braved several headwinds, including rising input costs and supply bottlenecks.
Second, on Jan. 27, 3M lost $110 million in a verdict on one of its ongoing lawsuits over defective earplugs that allegedly caused hearing damage. The verdict was 3M's largest loss yet in a trial related to the earplugs. The market dumped the stock as it feared how high 3M's litigation risks could eventually be given the roughly 300,000 lawsuits against it involving just the earplugs. 3M has several other lawsuits, including allegations of contaminating drinking water. Analysts foresee 3M's potential earplug liabilities reaching a multibillion-dollar total to even $1 trillion or more.
Third, 3M disappointed investors early in February by increasing its quarterly dividend by only $0.01 to $1.49 a share.
With such a morbid start to the year, investors were pinning hopes on 3M's outlook update on Feb. 14 to help the stock rebound. That was not to be, which led to the fourth reason its stock is under pressure.
On Feb. 14, 3M announce the following guidance for 2022:
- Organic sales growth: 2% to 5%.
- Total sales growth: 1% to 4%.
- Earnings: $10.15 to $10.65 per share versus the $10.12 it earned in 2021.
- Operating cash flow: $7.3 billion to $7.9 billion versus $7.5 billion in 2021.
As unimpressive as that outlook was, something else that 3M said didn't go down well with the market: Guidance included "an anticipated decline in COVID-19-related disposable respirator demand in 2022," which is expected to hit its organic sales growth by 2% and earnings by $0.45 per share.
Image source: Getty Images.
Put another way, 3M proved its critics right about decelerating growth as the effects of the pandemic start to ease and demand for respirator masks cools off.
And fifth, in the days that followed, analysts from at least eight well-known investment banks and research firms downgraded their rating and price targets on 3M stock based on its weak 2022 guidance and mounting litigation risks, among other things.
Now what
From stagnant growth and a disappointing dividend increase and outlook to litigation costs and multiple analyst downgrades, investors in 3M have had a lot to consider. It shouldn't come as a surprise if some investors dumped the stock as they weighed its risks against potential rewards.
3M stock, though, is now trading at prices not seen in nearly six years despite a growing top line and robust cash flows, pushing its dividend yield to 4%. That might tempt some, particularly income investors, to pay attention to this Dividend King now.
